In this issue of JLN Managed Futures, hedge fund ETFs are apparently lethal weapons in the hands of non-savvy investors. Commodities run the risk of “de-financialization” according to Dan Kemp in a Reuters story. The illustrious David Einhorn professes his love of gold as an asset class and, at the same time, mocks Warren Buffett for his “cash is king” philosophy. Finally, Dan Hart of Cortland Fund Services discusses series trusts with JLN Managed Futures editor Jim Kharouf.
Quote of the Day
“Growth has begun to slow, as investors have ramped up their allocations, and excitement may be cooling with the lackluster performance of alternatives relative to the overall market over the last few years.”
-Scott Burns, director of ETF, closed-end fund, and alternative research for Morningstar, in CNBC.com’s “Annual Survey Finds Continued Strong Usage of Alternative Investments Among Institutions and Financial Advisors But Growth Slowing“
Observations – Statistics – Commentary
MFA Forum 2012 June 12-13, 2012, The Fairmont Millennium Park, Chicago
Managed Funds Association
Forum 2012 is MFA’s 18th annual managed futures and global macro strategies conference designed to bring managers and investors together for networking, education and business development. Forum 2012 will feature “Meet the Manager” booths in an exhibit hall, an afternoon of “Manager Salons” for pre-selected managers to host open discussions, and two 45-minute roundtable discussions of different strategies.
**DA: Forum 2012 will also honor the winners of the previous night’s Managed Futures Pinncle Awards. Read on:
Managed Futures Pinnacle Awards, Monday June 11, 2012, Chicago
Join CME Group and BarclayHedge for the first and only awards event to recognize excellence exclusively in the managed futures space
**DA: To view the nominees, click the “Award Categories” tab on the above link.
London – Emerging Manager Forum, June 28, 2012, Mayfair Hotel
Are you tired of talking to the same people? Are you looking to expand your rolodex? Emerging Manager Forum was established to help Professional Capital Raisers, Asset Allocators and Clients identify new international trading talent, including CTAs, FX and global macro traders, and to promote investing in managed futures, foreign exchange and hedge funds.The second annual Emerging Manager Forum – London (EMF London), will be held at The May Fair Hotel, June 28, 2012.
Hedge Fund ETF Weapons Turn Dangerous For Solo Investors
As the biggest ETF managers capture assets from traditional mutual funds with benchmark-tracking offerings, smaller competitors are catering to sophisticated investors with an increasingly complex arsenal of products. Often based on derivatives, these can be weapons for savvy investors to amplify wagers on rising or falling prices of everything from stocks and bonds to currencies and commodities. The same tools, readily available through conventional and online brokers, have proven hazardous for individual investors who sometimes misunderstand and misuse them with costly consequences.
**DA: I am concerned that, as alternative investments scale up and become available to retail investors, they become closer to traditional investments, thus losing some of the non-correlative attractiveness. This is a trend worth following.
Are commodities at risk of de-financialization?
John Kemp, Reuters
Unless returns on commodity futures and options start to pick up soon, institutional investors may sour on the asset class and scale back or terminate their exposure to it, ending a decade-long trend that has seen increasing financial involvement in commodity derivatives.
**DA: Uh, I thought the whole point of trading commodity futures and options was that you don’t just make money on the up-trend.
|Managed Futures Scorecard||6/1/2012|
|Newedge Indices||MTD Return||YTD Return|
|Newedge CTA Index||2.29%||1.80%|
|Newedge CTA Trend Sub-Index||1.68%||2.76%|
|Newedge Trend Indicator||0.89%||-3.19%|
|Newedge Short-Term Traders Index||2.57%||0.04%|
|Barclay Indices||MTD Return||YTD Return|
|Barclay CTA Index||-0.74%|
|Barclay UCITS Index||5.07%|
|Barclay Hedge Fund Index||4.88%|
|BTOP FX Index||0.45%||1.22%|
|Morningstar Long/Short Com. Index||-2.7%||0.96%|
Jack Schwager, Emanuel Balarie team up to launch multi manager FX fund
On June 1, US-based ADM Investor Services plans to launch the ADM Investor Services Diversified Strategies Fund, a portfolio of futures and FX managed accounts. ADM Investor Services has tapped into the experience and expertise of industry veteran Jack Schwager to spearhead the manager selection and portfolio construction for the fund. Schwager is the author of John Wiley’s Schwager on Futures series and the best-selling Market Wizard series, which includes the recently released Hedge Fund Market Wizards. The fund is co-managed by Emanuel Balarie who heads up Balarie Capital Management, the managed futures division of Archer Financial Services.
**JK – The new market wizards.
AlphaClone Launches First ETF to Invest Directly in Hedge Fund Equity Positions
The AlphaClone Alternative Alpha ETF (NYSE: ALFA) begins trading today, becoming the first exchange-traded fund (ETF) to invest in disclosed equity positions held by established hedge fund managers. The new ETF seeks to capture alpha from these managers’ long positions while protecting against protracted market downturns through a dynamic hedge mechanism.
Investors rush into haven bonds
The once unthinkable is stalking global investors. And record low yields on haven government bonds such as US Treasuries, UK gilts and German Bunds are proving no deterrent to buyers. The alarming possibility of a eurozone break up and mounting fears that Spain is heading for a bailout is sending investors scrambling to preserve capital rather than seek a decent return on their money.
**DA: The CNNMoney Fear&Greed Index is down to 12. Haven’t seen that level in a while.
Einhorn Trashes Buffett And Cash, But Loves GoldForbes
Hedge fund manager David Einhorn, well known for his persuasive belittling of companies he has shorted–a recent successful target was Green Mountain Coffee Roasters (GMCR)– has slyly taken on a sturdier target in his May 29 letter to holders in his Greenlight Capital funds: Warren Buffett.
The Secrets of The World’s Greatest Traders
All About Alpha
Traders and investors have made (and lost) some of the world’s most significant pools of wealth. It’s no coincidence that many of the wealthiest individuals in the world today (and through history) have been successful investors. Names like Warren Buffet, George Soros, John Paulson, David Einhorn, Bill Gross and Sir John Templeton have become synonymous with strategies that have created astonishing success, in many case creating a groundswell of books and analysts who study their lives in great detail to understand “what” the magic formula was.
**DA: Interview with Market Wizards author Jack Schwager, whose fourth book, Hedge Fund Market Wizards, has just been released. I prefer wizard books written by J.K. Rowling.
Managed Futures/Managed Funds
In Unfamiliar Territory: How managed-futures trader Salem Abraham plans to end his recent losing streak.
By Nancy F. Smith, Barrons
These days, it’s the tsunami of money flowing from the central bankers that worries Abraham. “Personally, I’d put my money in stuff, real tangible stuff, like real estate, metals, oil and gas, even equities in companies that make food, building materials, tractors, clothing,” he says. “And I’d avoid any type of government debt or CDs until we see what happens with currencies.”
**DA: Good article, but if you have already heard the quaint Canadian, Texas Abraham family back story, skip to the end, where he gives his outlook on the commodities market and trends in institutional investing.
The Algorithmic Arms Race
It’s the day after Cambridge physicist Stephen Hawking’s 70th birthday party and David Harding, the head of one of the most successful hedge funds in the world, is bubbling with talk of black holes. Given the financial crisis of the last few years, some might see that as an unwise topic of conversation for a hedge fund manager. But for Harding, a physicist, the geekier the better.
Defining a Global Macro Strategy
Brent Hankins and Chris Keenan of Welton Investments specialize in alternative investments, using managed futures and a systematic global macro approach.
What Works, What Doesn’t for Hedge Funds
Donald Steinbrugge, founder of third-party hedge fund marketing firm Agecroft Partners, said during a panel at a recent alternative investment conference that pension funds in the past three years have invested greatly in hedge funds, particularly those with a commodity trading advisor strategy. “If you look at the makeup of the hedge fund industry since 2007, CTAs have, by far, taken in more assets than any other strategy,” Steinbrugge said.
Pensions & Institutions
When Pension Plans Come to the PE Table
All About Alpha
When there’s almost $400 billion in institutional money in the room at a private equity conference, general partners are bound to pay attention. But they’re also going to have to take careful notes, because these are sophisticated investors who know the market – and have their own direct investing programs.
Annual Survey Finds Continued Strong Usage of Alternative Investments Among Institutions and Financial Advisors But Growth Slowing
Morningstar and Barrons released the highlights of their fourth-annual national survey examining the perception and usage of alternative investments among institutions and financial advisors. “Institutional investors and financial advisors have significantly expanded their alternative holdings since the 2008 crash, and continue to view alternative investments as an important part of their portfolios,” Scott Burns, director of ETF, closed-end fund, and alternative research for Morningstar, said. “Growth has begun to slow, though, as investors have ramped up their allocations, and excitement may be cooling with the lackluster performance of alternatives relative to the overall market over the last few years.”
Investor Hazard: ‘Zombie Funds’
Wall Street Journal
Talbot Hall, a New Jersey facility that prepares prison inmates for release, drew an investment from a private-equity fund 16 years ago. Today, the investment sits in a “zombie fund”: a near-dead fund that ties up investors’ money and continues charging them fees even as hopes of profiting from its remaining assets have faded.
**DA: Keep paying the fees, and the fund promises it won’t eat your brain.
Hedge fund got most S.C. fees while lagging on returns
By MARTIN Z. BRAUN – Bloomberg News
Mariner Investment Group, a hedge fund founded by a former Bear Stearns fixed-income executive, charged South Carolina’s pension fund more than any other manager while delivering returns that trailed competitors. Mariner, started by William Michaelcheck, 65, got $38 million in fees from the South Carolina Retirement Systems in fiscal 2011, or 16 percent of all the compensation paid to the fund’s money managers, which totaled $239 million, according to pension officials.
Pension funds continue move away from equities
Pension fund allocations to alternatives are increasing as European investors continue to turn their back on the equity markets, according to Mercer’s annual European Asset Allocation Survey. The survey of more than 1,200 European pension funds with assets of over €650bn found that an increasingly broad range of alternative asset classes are being considered by pension plans, with 50% of schemes now holding an allocation to alternatives, up from 40% last year.
Cash balance plans gain favor as option among public pension funds
By Kevin Olsen, P&I Online
More than 15 cities, counties and states have cash balance and other types of hybrid plans, the majority approved or implemented in the last two years, according to Pensions & Investments data and reports from the National Conference of State Legislatures. Meanwhile, pension board and state officials in Texas, California and Mississippi have made proposals or commissioned studies on adding a hybrid plan option.
The Pension Crisis
New York Observer
Governor Cuomo and other reformers in Albany had reason to celebrate in the spring when the governor signed a landmark pension bill that experts say will save the state something like $80 billion over the next three decades. Now, however, we’re beginning to understand that welcome as those reforms were, the state and the city still face a potentially catastrophic fiscal crisis if more radical changes to public pensions are not made soon.
**DA A similar story is unfolding here in Illinois, as lawmakers are on the verge of adjourning for the summer with no legitimate pension reform bill. This state cannot balance a budget without addressing the pension issue. If only the state had its own currency it could devalue.
One In Nine Fund Managers Has Regulatory Black Mark, New Forms Show
A report compiled from new data required by the Securities and Exchange Commission shows another secret the industry would prefer its clients didn’t know about. One in nine advisors to private funds have a “significant adverse regulatory event” ranging from a regulatory violation to a felony conviction in the past 10 years.
**DA: Article begins with Bernie Madoff’s mug shot and the caption, “What would his Form ADV have shown?”
JPMorgan loss set to alter regulatory focus
JPMorgan’s shock loss, which the bank says was incurred as part of a hedging strategy using derivatives indices, has highlighted the drawbacks once again.
“The psychological effect of a major bank being caught in error is very powerful,” says Mark Hale, chief investment officer of Prytania Investment Advisors. “It may well be that regulators decide to look more closely at portfolio hedging.”
Mutual Funds Group Urges Limits On Hedge Fund Advertising
Mutual funds are pushing for limits on hedge fund advertising permitted under the Jumpstart Our Business Startups Act, saying such ads may hurt investors and damage the entire fund industry.
**DA: Just because we CAN does not mean we SHOULD.